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Promise Co. said Tuesday it posted huge losses for the last business year because it set aside hefty provisions to return excessive interest charges to customers.

In its consolidated earnings report for business 2006, which ended March 31, Promise booked 378.28 billion yen in net losses, compared with a profit of 42.05 billion yen the previous year. The per-share net loss came to 2,982.86 yen.

The major consumer finance company recorded a pretax loss of 201.50 billion yen in business 2006 against a profit of 70.01 billion yen the year before, and an operating loss of 203.32 billion yen against an operating profit of 67.35 billion yen. Operating revenue stood at 368.92 billion yen, down 3.2 percent.

To deal with the tough prospects facing consumer lenders following a legal revision to eliminate “gray-zone” interest rates, Promise said it plans to cut roughly one-fifth of its 5,000 workforce over a three-year period.

It will cut the number of its manned outlets nationwide to about 300 from the roughly 400 today and consolidate its unmanned outlets and other offices. Together with the job cuts, Promise hopes to cut 40 billion yen in annual operating costs.

The firm said the sluggish performance resulted from greater expenses in covering the costs of returning overcharged interest payments.

Promise and other consumer finance companies have long charged gray-zone interest rates falling between two separate maximum rates.

The Interest Rate Restrictions Law caps rates at 15 percent to 20 percent depending on loan size, while the Investment Deposit and Interest Rate Law allows rates of up to 29.2 percent if borrowers give written consent.

Since a Supreme Court judgment in January 2006 that effectively repudiated the validity of gray-zone rates, however, lenders have faced increasing demands from borrowers for refunds of overcharged interest fees and have been forced to prepare provisions to cover losses from the refunds.

In December, the Diet enacted a bill to impose a blanket interest rate cap of 20 percent and eliminate gray-zone rates toward late 2009.

In its 2006 earnings report, Promise said it will pay a per-share dividend of 105 yen for the 12 months, unchanged from the year before. For the current business year through next March, it projects a group net profit of 14.00 billion yen, a pretax profit of 19.40 billion yen and an operating profit of 20.60 billion yen on operating revenue of 335.10 billion yen, down 9.2 percent from 2005.

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